Reich: US Can Fix Budget Without Austerity

Economist and former U.S. Secretary of Labor Robert Reich says the United States can fix its economy without resorting to the austerity measures plaguing much of Europe.

"The way to avoid this austerity trap is to get growth and jobs back first, and only then tackle budget deficits," Reich writes in the Christian Science Monitor. "The U.S. hasn’t yet fallen into the trap, but it could soon."

"The non-partisan Congressional Budget Office warned we’ll be in recession early next year if the Bush tax cuts end as scheduled on January 1, and if more than $100 billion is automatically cut from federal spending, as required by Congress’s failure last August to reach a budget deal."

If recent history is any guide, observes Reich, a deal to break a predictable Democrat-Republican budget standoff will be struck at the last moment during a lame-duck Congress, some time in late December, and it will only be to remove the January 1 trigger, which means no plan for reducing the budget deficit.

“I’ve got a better idea a different kind of trigger,” says Reich, now a professor of public policy at the University of California at Berkeley.

“Instead of a specific date, make it the rate of growth and employment we should reach before embarking on deficit reduction,” says Reich, who served in three national administrations.

Three percent growth and 5 percent unemployment would be good goals, Reich says. At that point the Bush tax cuts automatically expire, the wealthy pay a higher rate, and $2 trillion in spending cuts begin.

“This way we avoid the austerity trap that Europe has fallen into,” says Reich. “And we get on with the long-term job of taming the budget deficit when the economy is healthy enough to do so.”

According to Politico.com, the Center on Budget and Policy Priorities published a report saying that as much as $366 billion in 10-year-revenues would be lost under House Democratic leader Nancy Pelosi’s plan allowing households earning up to $1 million — not just $250,000 — to be allowed to keep their lower tax rates after January.